There are ways to use the Fair Credit Reporting Act to get these unsecured debts voided, especially because collection agencies often lack the necessary documentation for legally enforcing debt obligations.This forum post has some good information on how to do that.Even so, bankruptcy should be considered only as a last resort, as it has long-term, negative consequences on credit rating.Often creditors sell their unsecured debts to collection agencies, who then adopt aggressive tactics to collect on the debt, or as much of it as they can.Occasionally, however, creditors will band together to file an involuntary Chapter 11 petition against a defaulting debtor.Most debtors file Chapter 11 where their primary place of business is located.
Under chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment, or may seek a more comprehensive reorganization. If a debt management plan is developed during required credit counseling, it must be filed with the court. Moreover, a bankruptcy discharge does not extinguish a lien on property. Sole proprietorships may also be eligible for relief under chapter 13 of the Bankruptcy Code. If the debtor's "current monthly income" (1) is more than the state median, the Bankruptcy Code requires application of a "means test" to determine whether the chapter 7 filing is presumptively abusive. Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing. One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a "fresh start." The debtor has no liability for discharged debts. A chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives or where the business debtor is organized or has its principal place of business or principal assets. In addition, individual debtors who have regular income may seek an adjustment of debts under chapter 13 of the Bankruptcy Code. Abuse is presumed if the debtor's aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than (i) ,850, or (ii) 25% of the debtor's nonpriority unsecured debt, as long as that amount is at least ,700. A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13. In addition, no individual may be a debtor under chapter 7 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. In a chapter 7 case, however, a discharge is only available to individual debtors, not to partnerships or corporations. (3) In addition to the petition, the debtor must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a statement of financial affairs; and (4) a schedule of executory contracts and unexpired leases. In Chapter 7 bankruptcy, which is the most common form of bankruptcy, many debts are forgiven, and a variety of personal assets are sold — liquidated — to repay as many remaining debts as possible.In general, Chapter 11 bankruptcy is utilized by corporations and other business owners, while Chapter 7 bankruptcy is favored by individuals.